Few hotel companies were more affected by the shifts in demand spurred on by the COVID-19 pandemic than Hyatt Hotels Corp.
With much of its portfolio heavily reliant on demand from groups and high-end business travelers — two segments that have taken longer to recover to pre-pandemic booking levels than leisure travelers — the company lagged its hotel brand peers in the early stages of the recovery.
But a yearslong strategy to sell off owned real estate to put more focus on a less-capital-intensive, fee-based business model — and the acquisition of Apple Leisure Group to significantly boost the company's portfolio of high-end resorts — helped the company reverse course in 2022. Hyatt posted a $455 million profit in 2022 after a $222 million loss in 2021, and revenue jumped from $3 billion in 2021 to $5.9 billion in 2022.
Speaking during the company's fourth-quarter and full-year 2022 earnings call Thursday, President and CEO Mark Hoplamazian said the real estate sales and brand acquisitions the company made have helped transform it into a more successful organization and spurred growth in its loyalty platform World of Hyatt.
"The execution of this strategy has been nothing short of remarkable," he said. "Over the past five years, we realized proceeds of approximately $3.8 billion from the sale of owned hotel real estate net of hotel acquisitions, and we invested approximately $3.6 billion to acquire three platforms — Miraval, Two Roads Hospitality and Apple Leisure Group."
He also noted the company spent roughly $2 billion in share repurchases during the same time frame.
These transactions have been a success, Hoplamazian said, because they contribute roughly twice as much to the company's earnings than the hotels sold to fund the deals. On top of that, they are less expensive to maintain over time.
"The capital investment needed to maintain the assets that we sold compared to the platforms that we acquired is significantly different," he said. "The owned real estate that we sold was estimated to need on a run-rate basis approximately $130 million in capital expenditures each year, while by comparison the three platforms that we acquired, which are predominately asset-light, collectively needed only $40 million of capital expenditures in 2022."
He said the company is now achieving record levels of profitability, with $473 million in free cash flow for 2022, a figured that is "nearly 50% higher than any previous year in Hyatt's history."
The company predominantly sold hotels with long-term management or franchise agreements, which continue to add to the company's fee revenues while "significantly elevating" the company's brand portfolio.
"In only five years, we've doubled the number of luxury rooms, tripled the number of resorts, and quadrupled the number of lifestyle rooms in our portfolio," he said. "And we now have more luxury branded hotels in resort locations than any other hospitality company in the world."
He said the significant growth in aspirational leisure destinations has helped the appeal of World of Hyatt grow significantly.
"As a result of our transformed portfolio, which is largely due to the platforms we acquired, we've been able to drive increased loyalty from our guests, as evidenced by World of Hyatt membership growing from 10 million members to 36 million members during the past five years," he said.
And the company still has runway to continue its transformation, Hoplamazian said. Hyatt intends to sell $1.3 billion worth of hotels by the end of 2024 and to buy more brands and platforms — as it did with its recently completed acquisition of Dream Hotel Group.
"We will continue to seek out compelling asset-light platforms that will expand our portfolio and have embedded growth while providing unique experiences for our guests," he said.
Hoplamazian said the Dream acquisition "broadens [Hyatt's] reach into a younger demographic, provides a differentiated experience for our guests and expands our presence in New York City by 30%." The deal added 12 lifestyle hotels to the company's portfolio with more than 1,700 rooms and 24 management agreements. Dream hotels represent roughly 10% of Hyatt's lifestyle room count.
Earnings Performance
In the company's latest earnings release, Hyatt announced year-over-year systemwide revenue per available room growth of 34.8% in the fourth quarter and 60.2% for the year.
The company recorded adjusted earnings before interest, taxes, depreciation and amortization of $232 million in the quarter and $908 million for the year. In terms of adjusted EBITDA, Apple Leisure Group contributed $43 million in the quarter and $231 million for the year.
As of press time, Hyatt's stock was trading at $117.12 per share, up 29.5% year to date. The NYSE Composite was up 5.1% for the same period.